Piyush Kumar Sharma vs Sebi

Date of Hearing : 19.04.2023 Date of Decision : 28.04.2023

Appeal No. 363 of 2023

Piyush Kumar Sharma 100, Dhanvantari Nagar, Rajendra Nagar, Indore, Madhya Pradesh, India. Pin - 452012. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Vedchetan Patil, Advocate for the Appellant.

Mr. Vyom Shah, Advocate with Mr. Bhushan Shah, Mr. Aditya Sarangarajan, Ms. Veena Hari, Advocates i/b Mansukhlal Hiralal & Co. for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

Per : Justice Tarun Agarwala, Presiding Officer 2

1.

The present appeal has been filed against the order dated

January 10, 2023 passed by the Adjudicating Officer (hereinafter

referred to as 'AO') of Securities and Exchange Board of India

(hereinafter referred to as 'SEBI') imposing a penalty of Rs. 15 lakh

under Section 15A(a), 15C, 15EB and 15HA of the Securities and

Exchange Board of India Act, 1922 (hereinafter referred to as 'SEBI

Act') for violation of Regulations 13(b), 21, 25(1) of the Securities

and Exchange Board of India (Investment Advisers) Regulations,

2013 (hereinafter referred to as 'IA Regulations') and Regulations

3(d) and 4(2)(s) of the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations, 2003 (hereinafter referred to as

'PFUTP Regulations').

2. The facts leading to the filing of the present appeal is, that D.

S. Capital Venture Pvt. Ltd. was registered with SEBI as an

investment adviser. The appellant was one of the directors appointed

on January 25, 2017 and resigned on July 7, 2020. It was observed

that there were 17 complaints on the SEBI Complaints Redressal

System (hereinafter referred to as 'SCORES') platform which

remained unaddressed for six months. These complaints related to 3

false assurances, assured returns, advisory services, loss of funds,

cheating, etc. Consequently, a show cause notice dated August 23,

2021 was issued to show cause as to why an inquiry should not be

held and penalty should not be imposed under Section 15C, 15HA,

15EB and 15A(a) of the SEBI Act.

3. The show cause notice alleged that :-

1. The appellant alongwith the company and other directors

were responsible for conduct of the business of the

investment adviser and failed to redress investor

grievances forwarded to them on the SCORES platform.

As on December 9, 2020, there were 17 complaints

which were pending on the SCORES platform for more

than six months.

2. The appellant alongwith other noticees failed to produce

the documents sought for the purpose of inspection.

3. The appellant and other noticees failed to inform change

of its registered office address to SEBI.

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4. The appellant and the other noticees failed to inform nor

obtained approval for change of directors from SEBI.

5. The directors failed to ensure maintenance of the

appropriate standards of conduct and adherence to proper

procedures.

4. The AO after considering the material evidence on record and

after considering the reply of the appellant and of noticee nos. 4

came to the conclusion that the appellant had violated the allegation

made in the show cause notice and consequently imposed a penalty

of Rs. 15 lakh.

5. We have heard Mr. Vedchetan Patil, the learned counsel for

the appellant and Mr. Vyom Shah, the learned counsel with Mr.

Bhushan Shah, Mr. Aditya Sarangarajan, Ms. Veena Hari, the

learned counsel for the respondent.

6. Admittedly, the appellant was a director from January 25,

2017 to July 7, 2020. During this period, there were 17 complaints

on the SCORES platform which had not been redressed. The

appellant along with the company and other directors are responsible 5

and, therefore, for non-redressal of complaints on the SCORES

platform, the appellant has violated Regulation 21 of the IA

Regulations.

7. The AO has also found that the appellant failed to produce the

documents as sought during the inspection. In this regard, we find

that an inspection notice was sent on November 12, 2020 which

came back undelivered. We also find that the appellant had resigned

on July 7, 2020 and consequently the question of the appellant

complying with the inspection notice dated November 12, 2020 does

not arise. Consequently, no penalty can be imposed upon the

appellant for failure to produce the documents pursuant to the

inspection notice.

8. Further charge is that the appellant failed to inform the change

of its registered office address and change in the directors of the

company. Admittedly, no such information was provided to SEBI

with regard to change of address or change in the directors of the

company. The appellant is consequently guilty of violating

Regulation 13(b) of the IA Regulations.

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9. The AO has found that the company had conducted its

business in an unwarrantable and unjustifiable manner. Further,

finding is that there was mis-selling of securities or services relating

to the securities market, providing assured returns and making a false

or misleading statement and, therefore, violated Regulations 3(d) and

4(2)(s) of the PFUTP Regulations. For facility, Regulations 3(d) and

4(2)(s) of the PFUTP Regulations is extracted hereunder :-

"3(d). No person shall directly or indirectly -

(d). engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognised stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under."

"4(2)(s). mis-selling of securities or services relating to securities market;

Explanation - For the purpose of this clause, "mis- selling" means sale of securities or services relating to securities market by any person, directly or indirectly, by ─

(i) knowingly making a false or misleading statement, or

(ii) knowingly concealing or omitting material facts, or

(iii) knowingly concealing the associated risk, or 7

(iv) not taking reasonable care to ensure suitability of the securities or service to the buyer."

10. Having perused the order, we find that the basis of the

appellant and its company conducting its business fraudulently and

being violative of Regulations 3(d) and 4(2)(s) as depicted in

paragraph no. 22 of the impugned order is not based on any material

evidence on record. There is nothing on record to indicate that the

appellant was providing assured returns or making false or

misleading statement except the complaints which have been

received on the SCORES platform. In our opinion, allegations made

in the complaints cannot be made the gospel truth. The AO is

required to investigate the allegations made in the complaints and

arrive at a finding. Such bald allegations made in the complaints

cannot, in our opinion, lead to an assumption or presumption nor can

it lead to a conclusion that the appellant and its company have played

a fraud attracting Regulations 3(d) and 4(2)(s) of the PFUTP

Regulations. Thus, this allegation is not proved and, in our opinion,

there is no violation of Regulations 3(d) and 4(2)(s) of the PFUTP

Regulations.

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11. In view of the aforesaid, we are of the opinion that the

appellant has violated Regulation 13(b) and Regulation 21 of the IA

Regulations. The charge of violating Regulation 25(1) of the IA

Regulations and Regulations 3(d) and 4(2)(s) of the PFUTP

Regulations is not proved.

12. For violation of Regulation 13(b) of the IA Regulations,

penalty under Section 15EB of the SEBI Act can be imposed wherein

a minimum penalty is Rs. 1 lakh. Similarly, for failure to redress

investor grievance and thereby violating Regulation 21 of the IA

Regulations, penalty can be imposed under Section 15C of the SEBI

Act which provides a minimum penalty of Rs. 1 lakh.

13. Considering the aforesaid, the imposition of Rs. 15 lakh in

the given circumstances is harsh and excessive and in view of what

we have held earlier in the given circumstances and considering the

fact that according to the appellant the master mind and main person

was Sanjay Dwivedi, noticee nos. 5, we are of the opinion that the

penalty for the aforesaid violations should be Rs. 3 lakh which would

commensurate with the alleged misconduct.

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14. In view of the aforesaid, the appeal is partly allowed. The

violation committed by the appellant under 13(b) and 21 of the IA

Regulations are upheld and the penalty is reduced from Rs. 15 lakh

to Rs. 3 lakh.

15. This order will be digitally signed by the Private Secretary on

behalf of the bench and all concerned parties are directed to act on

the digitally signed copy of this order. Certified copy of this order is

also available from the Registry on payment of usual charges.

Justice Tarun Agarwala Presiding Officer

Ms. Meera Swarup Technical Member 28.04.2023 PRAMILA Digitally signed by PRAMILA TANAJI TANAJI MISAL PTM Date: 2023.04.28 MISAL 17:27:58 +05'30'